The Co-operative Group was today urged to sort out the crisis engulfing it for the sake of its millions of customers and thousands of staff.

Group chief executive Euan Sutherland resigned yesterday following what appears to be a breakdown in relations at the top of the company - the city’s biggest private sector employer.

His decision to walk away ‘on a point of principle’ came after the Co-op’s proposal to award him a £3.6m pay deal was leaked over the weekend. He has faced strong resistance from board members over his plans to overhaul the Group which brought him in to rescue the troubled mutual, founded in Rochdale, from ‘the worst crisis in its history’.

His departure sparked concern from the region’s MPs who have called for bosses to ‘get a grip’ and install strong, stable leadership to secure the firm’s future.

Lucy Powell, Labour MP for Manchester Central, said: “This is a very worrying time for Co-op customers and members but very particularly to Manchester for the thousands of employees whose jobs rely on the Co-op Group. This is a crisis. What we need to see now is some strength in leadership, some reform in governance and proposals on the table need to be brought forward and implemented properly so we can get back on track.

“I think there is a good future for the Co-op model but we need to see strong and stable leadership. I fundamentally disagree with the view that you have to choose between being successful commercially and being a mutual model with the values of the Co-operative. If you look at John Lewis and Waitrose they very successfully operate with those sorts of values at their heart. That model is a very important point of difference in a market dominated by big businesses that people feel are distant from their lives.

“I think Euan Sutherland was doing a good job in difficult circumstances but maybe the pace of change he was looking for was too fast for an organisation that is quite conservative and has been around a long time and maybe his expectations were too high.”

Rochdale’s outspoken Labour MP Simon Danczuk said Mr Sutherland ‘did not buy into the Co-op’s ethos and should never have been there in the first place’. He added: “People in charge of the organisation have got to get a grip and get it back on track by appointing a leader that buys into the mutual ethos and has a strong track record in running large organisations.

“I’m happy to see the back of him. I think the Rochdale pioneers would be spinning in their graves with regard to how he’s run the organisation. There’s no room for corporate greed in an organisation like the Co-op. The organisation is now in desperate need of stability and good, strong leadership.”

The nature of Mr Sutherland’s departure added to the increasingly chaotic reputation of the Group whose banking arm was rescued from collapse last year after it was found to have a £1.5billion hole in its finances. The organisation was hit by further scandal with the departure of its disgraced former chair, Paul Flowers.

The Co-op Group confirmed they had accepted Mr Sutherland’s resignation on Tuesday afternoon following hours of speculation and emergency phone calls. He agreed to forego seven figure retention and long-term incentive payments due to him on the back of his decision to leave which was put to the board in a letter on Monday night.

Members have since agreed to a shake-up of the board’s structure, splitting off representatives elected from its membership from the core ‘plc’ type board overseeing the running of the business. Chief Financial Officer, Richard Pennycook, has been appointed Interim Group Chief Executive with immediate effect.

Ismael Erturk, senior lecturer in banking at Manchester Business School, commented: “The Co-op Group continues to make serious managerial mistakes about its future strategy, the latest being the leaked, ill-thought out remuneration package.

“The Co-op’s biggest asset is its members and its mutual nature rooted in the local economy, it is these assets that the future strategy of the Co-op should be built on.

The cost of deviating from this has been high and can be even higher. There is no reason why the Co-op should go into administration given its current assets and strengths, as long as the management builds on its mutual strengths.”

In a statement, Mr Sutherland said: “It is with great sadness that I have resigned as chief executive. I have given my all to the business and had hoped to be able to lead its revival. However, I now feel that until the group adopts professional and commercial governance it will be impossible to implement what my team and I believe are the necessary changes and reforms to renew the group and give it a relevant and sustainable future.

“Saving The Co-operative Bank and with it The Co-operative Group from administration was a huge task, but the changes required do not stop there, with fundamental modernisation needed to safeguard the future for our 90,000 colleagues and millions of members.

“The Group must reduce its significant debt and drive major efficiencies and growth in all of its businesses, but to do so also urgently needs fundamental governance reform and a revitalised membership.

“I will not accept the retention payments and long term incentive payments previously agreed for the delivery and protection of value in the Group and the Bank, even though this was successfully delivered.

“I would like to thank all of the Co-op’s hard working colleagues for the support they have given me during my time. I wish them all well. The Co-operative has some wonderful people who deserve a great future.”

Ursula Lidbetter, chair of The Co-operative Group, said: “It is with deep regret that I accept Euan’s resignation. Last year, Euan and his team saved the The Co-operative Bank, without recourse to the taxpayer, and in doing so rescued the Group from the biggest crisis in its 150-year history. They have worked night and day to renew the organisation and to give it a sustainable future.

“Euan’s resignation must now act as a catalyst for the real and necessary change which the Group must go through. I would like to thank Euan for his hard work and leadership and to wish him the very best for the future.

“I also like to thank Richard for stepping up to lead the organisation at this critical juncture. We will start the process to appoint a permanent successor and urgently to reform our governance.”

Richard Pennycook added: “Our businesses continue to perform in line with the clear commercial plans put in place under Euan’s leadership and I and the team will plot a steady course in the coming months.”

The news comes after his remarks last month that 2013 had been “perhaps the worst year” in the Co-op’s long history and it had “lost its way”.